Indian banks set for 18% EPS growth in FY28 as margins expand: Macquarie
Synopsis
Macquarie Equity Research sees Indian banks delivering 18% EPS growth in FY28, backed by 75 basis points of expected rate hikes, margin expansion, and stable asset quality. PSU banks get an FCNR boost, Bank of Baroda gets an upgrade, and even beaten-down insurance names are flagged as value plays — a broadly bullish call on Indian financials heading into the next rate cycle.
Key Takeaways
Macquarie Equity Research projects 18% EPS growth for Indian banks in FY2027-28 .
Margins are expected to expand by nearly 15 basis points , aided by a 75 basis-point tightening cycle over the next 9–12 months .
PSU banks are forecast to deliver ROA above 1% and ROE of 13–15% , supported by FCNR(B) inflows and stable asset quality.
Bank of Baroda was upgraded by Macquarie on reasonable valuations and resilient core profitability.
NBFCs face near-term margin pressure from rising borrowing costs, though most are well capitalised and adequately provisioned.
Insurance firms flagged as undervalued, with regulatory concerns seen as largely priced in.
Indian banks are projected to deliver a robust 18 per cent earnings-per-share (EPS) growth in fiscal year 2027-28, underpinned by a nearly 15 basis-point expansion in margins, supportive macroeconomic conditions, and attractive valuations, according to a fresh report by Macquarie Equity Research. The findings, released on 30 September 2026, come as the sector navigates an evolving global rate environment and steady domestic credit demand.
Rate Hike Cycle and Margin Outlook
Macquarie Equity Research has raised its total tightening assumption to approximately 75 basis points of rate hikes over the next nine to twelve months, citing the US Federal Reserve's entry into a tightening cycle as a key driver of further margin expansion for Indian lenders. Higher rates are expected to translate directly into improved net interest margins, providing a tailwind for both public and private sector banks.
Private banks, in particular, are expected to be significant beneficiaries. 'Private banks should deliver strong EPS growth in the next two years as margins improve and operating expenses and credit costs fall,' the report stated, pointing to valuations of 1.3-fold FY28E price-to-book (P/B) and a 10-fold price-to-earnings (P/E) ratio as 'undemanding' and offering 're-rating potential.'
PSU Banks: FCNR Inflows and Asset Quality
Public sector undertaking (PSU) banks are expected to benefit from fresh Foreign Currency Non-Resident [FCNR(B)] deposit inflows, which have already helped ease liquidity constraints. The report projects a return on assets (ROA) above 1 per cent and a return on equity (ROE) of 13–15 per cent for PSU banks in FY28. Asset quality across the sector is described as stable, with higher rates expected to support margins and buffer Expected Credit Loss (ECL) provisioning costs.
Macquarie also upgraded Bank of Baroda, citing reasonable valuations and resilient core profitability, despite a one-off impact from the NMC case. Broad-based loan demand and healthy asset quality further strengthen the sector's macro backdrop, according to the report.
Insurance Sector: Underperformance Creates Opportunity
The report noted that insurance firms have underperformed their peers and now offer 'good value,' as regulatory concerns appear to have been largely priced in by the market. This positions the segment as a potential recovery play within the broader financial services universe, according to the analysis.
NBFCs: Growth Intact, Margin Pressure Ahead
Non-Banking Financial Companies (NBFCs) face a more nuanced picture. Despite healthy loan growth, a rate increase is expected to raise borrowing costs and pressure near-term margins, particularly given rising bond yields. Asset quality remains a watch point — especially for unsecured microfinance institution (MFI) and personal loans — if inflation persists.
However, Macquarie noted that most NBFCs are well capitalised and adequately provisioned. 'Following solid execution and valuation consolidation among some larger names, valuations of NBFCs appear more reasonable,' the report observed, suggesting the segment has corrected to more sustainable levels. The next key triggers for the sector will be the pace of rate actions and incoming inflation data in the quarters ahead.
Point of View
But the fine print deserves scrutiny. An 18% EPS growth forecast is contingent on 75 basis points of rate hikes materialising on schedule — a path that depends heavily on the Fed staying hawkish and the RBI following suit without triggering credit stress. PSU banks have historically struggled to translate margin tailwinds into sustained ROE gains, and the FCNR(B) boost is a liquidity event, not a structural fix. For NBFCs, the margin squeeze from higher borrowing costs could disproportionately hurt smaller players even as larger, well-capitalised names consolidate. The upgrade of Bank of Baroda despite the NMC one-off is a confidence call on management execution — one that the market will test quarter by quarter.
NationPress
30 Sept 2026
Frequently Asked Questions
Why are Indian banks expected to see 18% EPS growth in FY28?
According to a Macquarie Equity Research report, Indian banks are projected to deliver 18% earnings-per-share growth in FY2027-28, driven by a nearly 15 basis-point expansion in margins, robust loan demand, stable asset quality, and a tightening rate cycle. The US Federal Reserve's move into a rate-hike cycle is seen as a key catalyst for margin improvement.
How much rate tightening has Macquarie factored into its Indian banking outlook?
Macquarie has raised its total tightening assumption to approximately 75 basis points of rate hikes over the next nine to twelve months. This is considered increasingly likely as the US Federal Reserve continues its tightening cycle, which is expected to support further margin expansion for Indian lenders.
Which banks are expected to benefit the most?
Both PSU banks and private sector banks are seen as beneficiaries. PSU banks are expected to gain from FCNR(B) deposit inflows and stable asset quality, with ROA forecast above 1% and ROE of 13–15%. Bank of Baroda was specifically upgraded by Macquarie. Private banks are forecast to deliver strong EPS growth as margins improve and operating and credit costs decline.
What is the outlook for NBFCs under this scenario?
NBFCs face a mixed picture: loan growth is expected to remain strong, but rising interest rates and higher bond yields will increase borrowing costs and pressure near-term margins. Asset quality in unsecured MFI and personal loans is flagged as a risk if inflation persists, though most NBFCs are described as well capitalised and adequately provisioned.
Why are insurance firms highlighted in the Macquarie report?
Insurance companies have underperformed the broader financial sector, and Macquarie's report suggests they now offer good value because regulatory concerns appear to have been largely priced in by the market. The segment is positioned as a potential recovery play within Indian financial services.
